NEWMARKET COURT FILE NO.: DC-06-078406-00

DATE: 2006/04/28

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISONAL COURT

B E T W E E N:

635967 ONTARIO LIMITED carrying on business as SANCO BUILDERS

Robert N. Kostyniuk, Q.C., for the Plaintiff/Appellant

Plaintiff/Appellant

• and -

KEN THOMPSON, 755165 ONTARIO INC., TERRY WINDREM, ELLAS HOLDINGS INC., JAMES O’DRISCOLL and LAURENTIAN TRUST OF CANADA INC.

Jayne E. Hughes, for the Defendants/Respondents (moving parties)

Defendants/Respondents

HEARD: April 20, 2006

REASONS FOR DECISION

DiTOMASO J.

[1] The defendants/respondents (Thompson) move for an order staying the appeal of the plaintiff/appellant (Sanco) pending the posting of security for costs of the trial in the amount of $42,480.57 and the anticipated costs of the appeal in the amount of $45,000 by a date to be fixed by the court, failing which Sanco’s appeal shall be dismissed with costs.

[2] A further order is sought extending the time for the filing of Thompson’s responding material on the appeal together with costs of this motion.

BACKGROUND

[3] The appeal arises from the judgment of Marchand J. dated June 9, 2004. The action arose in connection with the financing of a condominium development in Oshawa. Thompson provided the financing to Sanco who was the builder/developer. Advances on three mortgages commenced in 1998. The mortgages were fully paid and discharged by September 1999 when Sanco obtained institutional financing.

[4] Sanco states that the appeal involves a specific finding of the trial judge regarding a second $150,000 bonus secured by Thompson from Sanco as a condition of providing further construction funding.

[5] Sanco has not appealed the order for costs made at trial and has not paid any amount toward the costs ordered at trial. Sanco takes the position it is unnecessary to separately appeal the costs order of Marchand J. since the appeal involves issues other than the court’s determination of costs, which follow the cause. If the appeal is successful, costs of the trial, as well as the appeal, will be within the discretion of the panel hearing the appeal.

[6] Counsel advise that appeals were launched both in the Court of Appeal and Divisional Court arising from the judgment of Marchand J. By my order of April 20, 2006, on consent, the appeal launched in the Court of Appeal was consolidated with the appeal in this court and will proceed as one appeal under Appeal No. DC-06-078406-00.

POSITION OF THE PARTIES

[7] Thompson takes the position there is good reason to believe that the appeal is frivolous and vexatious and that Sanco (a corporation) has insufficient assets in Ontario to pay the costs of the appeal and the trial. Thompson confirms the trial costs of the proceeding remain unpaid and are not an issue raised by Sanco on the appeal.

[8] For its part, Sanco asserts that its appeal has merit and should not be deprived of its opportunity to appeal by having to post security for costs simply because it might be unsuccessful. Further, Sanco asserts that it continues to be an active Ontario company. It is involved in a building project in Wellington, Ontario with excellent prospects for financial success. It does not anticipate difficulty in paying the net judgment against it, should the Divisional Court uphold the trial decision. The appeal is presently scheduled for September 11, 2006.

ANALYSIS

[9] Security for costs of the trial and costs of the appeal may be ordered in an appeal.

[10] Rule 61.06 (1) of the Rules of Civil Procedure provides:

61.06 (1) In an appeal where it appears that,

(a) there is good reason to believe that the appeal is frivolous and vexatious and that the appellant has insufficient assets in Ontario to pay the costs of the appeal;

(b) an order for security for costs could be made against the appellant under rule 56.01; or

(c) for other good reason, security for costs should be ordered,

a judge of the appellate court, on motion by the respondent, may make such order for security for costs of the proceeding and of the appeal as is just.

[11] The granting of security for costs is a matter of discretion. An appellate court has jurisdiction to order security for costs of the trial and costs of the appeal and to order costs of the motion for security for costs fixed and payable forthwith. Aegis Biomedical Technologies Ltd. v. Jackowksi et al (1996), 1996 952 (ON CA), 28 O.R. (3d) 558 (C.A.). In this case rule 56.01 (1) (d) and (e) of the Rules of Civil Procedure is also applicable:

56.01 (1) The court, on motion by the defendant or respondent in a proceeding, may make such order for security for costs as is just where it appears that,

(d) the plaintiff or applicant is a corporation or a nominal plaintiff or applicant, and there is good reason to believe that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent;

(e) there is good reason to believe that the action or application is frivolous and vexatious and that the plaintiff or applicant has insufficient assets in Ontario to pay the costs of the defendant or respondent.

[12] Rule 61.06. (1) sets out a two part test which requires the party seeking security for costs to establish that there is good reason to believe that the appeal is frivolous and vexatious and that the appellant (corporation) has insufficient assets in Ontario to pay the costs of the appeal and the trial.

[13] On this motion for security for costs, the initial onus is on Thompson to show that Sanco falls within rule 61.06 (1). If this onus is met, the court has discretion to grant or refuse an order for security, and if the court makes an order, it has a discretion as to the quantum and the means of payment of the order. Hallum v. Canadian Memorial Chiropractic College (1989), 1989 4354 (ON SC), 70 O.R. (2d) 119 (H.C.).

[14] Sanco may avoid the order for security by showing either (a) that the order is unnecessary because it has sufficient assets or (b) that it should be permitted to proceed to trial despite its inability to pay costs should it fail. Warren Industrial Feldspar Co. Ltd. v. Union Carbide Canada Limited (1987), 1986 2683 (ON SC), 54 O.R. (2d) 213 (H.C.).

[15] In the exercise of its discretion, the court may consider Sanco’s financial ability to proceed with the action should it be ordered to provide security for costs. i.e. whether the requirement of security for costs might work an injustice by denying a worthy claimant the opportunity of having its claim adjudicated.

[16] From the outset, Sanco does not claim that it is impecunious. To the contrary, it asserts that it does not anticipate difficulty in paying the net judgment against it should the Divisional Court uphold the trial decision. Sanco asserts it continues to be an active Ontario company with excellent prospects of financial success in respect of the Wellington subdivision development. Accordingly, there is no issue as to Sanco’s impecuniosity on this motion.

[17] However, if the moving party is found to be entitled to security for costs, an issue does arise as to whether Sanco can avoid the obligation to post security. In this instance, the onus then passes to Sanco to establish that it has sufficient assets in Ontario to make an order for security for costs unnecessary. Warren Industrial Feldspar Co. Ltd., supra at p. 219.

[18] In determining whether an order for security for costs ought to be made, I have considered the following questions.

[19] Is there good reason to believe that the appeal is frivolous and vexatious?

[20] The answer to this question is yes.

[21] Counsel for Thompson cross-referenced grounds of appeal 1 through 5 inclusive set out in the Notice of Appeal with the reasons for judgment of Marchand J. Both counsel agreed that it was not necessary to address ground of appeal number 6 set out in said Notice of Appeal.

[22] Thompson’s counsel co-related the various grounds of appeal with the findings of Marchand J. Those reasons are extensive and demonstrate a clear comprehension of the facts by Marchand J. supporting his findings. He found that the parties were sophisticated business people. In coming to his conclusions, Marchand J. in part came to rely on evidence given by Sanco’s own mortgage broker expert. (see Reasons of Marchand J. p. 8, para. 32.)

[23] Sanco asserts that the bonus on the third mortgage of $150,000 should not have been paid. If Thompson had properly advanced funds under the second mortgage, the third mortgage funding would not have been necessary. However, Marchand J. found that Thompson’s commitment on the initial site servicing was limited to $400,000. Sanco had contracted work which exceeded the initial site servicing commitment. It was clear from the evidence that to pay for the additional work necessary to bring the site within reach of Sanco being able to obtain a conventional commercial mortgage, Sanco needed the third mortgage commitment. Marchand J. concluded that the third mortgagee was entitled to keep its bonus of $150,000. (See Reasons for Judgment Marchand J. p. 9, para. 39, p. 10, paras. 42, 43, 46. As well, refer to p.8, para. 32.)

[24] Sanco’s counsel submitted that the approach taken by Thompson’s counsel was unnecessary given the very narrow and specific issue on the appeal.

[25] Sanco’s counsel submitted that the better document to refer to was Sanco’s factum filed in the appeal proceedings before the Court of Appeal. Unfortunately, that factum was not before this court. If it was being relied upon, Sanco’s counsel was obliged to produce same. This argument is of absolutely no effect where the factum could have been and should have been made part of this motion by Sanco.

[26] I am satisfied that the moving party has established the first part of the test. There is good reason to believe that the appeal is frivolous and vexatious.

[27] Is there good reason to believe that Sanco (a corporation) has insufficient assets in Ontario to pay the costs of the appeal and the trial?

[28] The answer to this question is yes.

[29] Filed in support of the motion is the affidavit of James O’Driscoll, one of the respondents. The affidavit and Exhibit “D” attached thereto discloses copies of outstanding construction lien claims totalling $172,558.51.

[30] In addition, James Sanders, the principal officer, director and shareholder of Sanco has a judgment against him personally in the amount of $25,074.82 dating from August 30, 2004. Sanco has four judgments against it for a total of $105,967.50 and costs. Copies of these execution certificates from the Sheriff of the Regional Municipality of Durham (Whitby) are attached and marked as Exhibit “E”.

[31] In addition, in support of the motion, is the affidavit of Ana Clarke with exhibits thereto. Exhibit “A” and a copy of the MLS listing, listing the sale of Mr. Sander’s home.

[32] Marked as Exhibit “B” to Ana Clarke’s affidavit is a notice of sale under mortgage with respect to a lot in the City of Oshawa where Sanco is identified as the mortgagor. Thompson provides this notice of sale under mortgage as further evidence of Sanco’s inability to meet its financial obligations.

[33] In response, Sanco tendered the affidavit of Melissa A. Banfield. Ms. Banfield is a solicitor in the firm of Sanco’s solicitors. It is based on information and belief primarily from Mr. Sanders, the principal of Sanco. It is not the affidavit of Mr. Sanders, who would be in the best position to give a first hand account of the finances of Sanco and the sufficiency of its assets.

[34] It is asserted that Sanco has been in business since 1986 and has never been insolvent or bankrupt. It carries on business as a general contractor and is currently involved in a 95 lot development in the Village of Wellington in Prince Edward County. However, counsel for Thompson advises that this development is not in Sanco’s name and does the moving parties no good. There is no evidence by way of abstract of title attached to Ms. Banfield’s affidavit confirming Sanco’s interest in the Wellington development.

[35] The affidavit goes on to explain the judgments and lien claims. The construction lien claims are described as “normal” in the development business and a number of them are disputed by Sanco on a genuine basis and are being actively pursued. Any monies owed to Sanco’s former solicitors is a non-issue as those monies have been paid. I accept this last statement.

[36] At paragraph 12 of her affidavit, Ms. Banfield, as advised by Mr. Sanders, deposes that Sanco experienced cash flow problems as a result of the Oshawa project. However, Sanco continues as an active Ontario company with excellent prospects for financial success in the Wellington project. It does not anticipate difficulty in paying the net judgment against it, should the Divisional Court uphold the trial decision. The hearing of this appeal is presently scheduled for September 11, 2006. Finally, at para. 12 it is stated “Sanco should be treated no differently than any other good citizen of the Province, corporate or otherwise”.

[37] This is the extent of Sanco’s evidence in respect of its position that it has sufficient assets to pay the costs of the appeal and trial.

[38] The affidavit evidence is thin at best and insufficient at worst. It is not in the name of the principal of the company who would be in the best position to give evidence as to the sufficiency of Sanco’s assets in Ontario to pay the costs of the appeal and trial. The affidavit does not contain any Sanco financial statements, bank statements, corporate tax returns or any parcel registrations which would indicate the financial health of the company relating to its ability to pay costs.

[39] I find that Sanco has not lead sufficient and cogent evidence to establish it has sufficient assets in Ontario to make an order for security for costs unnecessary. Alternatively, it has not relied upon its own impecuniosity or lead evidence to substantiate why justice demands that it be allowed to proceed without posting security. Warren Industrial Feldspar Co. Ltd., supra at p. 219.

[40] The moving party has established there is good reason to believe that Sanco has insufficient assets in Ontario to pay the costs of the appeal and the trial.

DISPOSITION

[41] It is ordered that:

1. Sanco’s appeal be stayed pending the posting of security for the costs of the trial in the amount of $42,480.57 and the anticipated costs of the appeal in the amount of $5,000 by May 31, 2006, failing which the respondents may make a motion to dismiss the appeal in accordance with rule 61.06 (2) of the Rules of Civil Procedure;

2. The time for the filing of the respondent’s factum/responding material on the appeal is extended to a date which is 60 days after May 31, 2006; and

3. The costs of this motion are fixed in the agreed upon amount of $1,500 payable by the appellant to the respondents forthwith.

Justice G.P. DiTomaso

Released: April 28, 2006